As recounted below, there's not so much that the executive branch can do -- and should do -- to prevent AIG from handing out loopy bonuses. But why can't Congress pass a law requiring that bonuses granted by a company that has taken bailout money from the Federal Reserve or TARP be taxed at a very high rate? Obviously, Congress would have to find some way to distinguish between legitimate performance pay and illegitimate bonuses, but a one-year tax hike on all such bonuses might not be unpalatable. It's a much saner alternative than to give the Treasury the instruction to root through contracts to find ways of breaking them.
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